5 Reasons Why You Need to Make a Habit of Saving Money

For many of us, the idea of saving money might appear laughable, or even impossible after taking into account monthly expenses and a salary that somehow never seems to be enough. That’s our very first mistake.

Saving money doesn’t necessarily need to be in tens of thousands of rupees – the idea is to set aside a small amount every month that eventually grows into something substantial.

Unfortunately, as Pakistanis, we seem to be caught in a low-saving trap which in turn also hampers the country’s economic growth. According to an SBP and Economic Survey, the percentage of domestic and national savings has remained consistently below 15% of GDP since the 1960s till 2015, only slightly spiking in the 2000s.

According to World Bank, savings in proportion to the country’s Gross Domestic Product stand much lower in Pakistan as compared to other nations within the region such as Bangladesh, India and Sri Lanka. Moreover, Pakistan’s savings ratio has actually plummeted since 2002, while the rest of the comparable nations in the region have shown a consistent increasing trend in savings during the same period.

The importance of saving small amounts is best described using the notion of “The Latte Factor”, a term coined by David Bach in his book Finish Rich. It is the simple idea that the trivial things we spend on everyday add up to a massive amount over time.

According to Bach:

Putting aside as little as a few dollars a day for your future rather than spending it on little purchases such as lattes, bottled water, fast food, cigarettes, magazines and so on, can really make a difference between accumulating wealth and living paycheck to paycheck.

Once you’re convinced that even those insubstantial amounts of money can matter, the next question that arises is “What am I saving for?”

Here are a few reasons:

An Emergency Fund

Having money stored away for a rainy day can be a huge blessing. Emergencies are inherently unpredictable so you never know when you’ll need some extra money. Being prepared for the worst might seem like the pessimistic approach but as you accumulate savings, your financial worries tend to diminish freeing up more of your time to indulge in enjoyable pursuits. Gradually building up an emergency reserve and making sure it always replenished after youve needed to use a part of it should be a high priority the moment you start

For Retirement

It’s true, many of us don’t even start thinking about retirement until we’re in our thirties or forties. And sometimes, that’s too late. Retirement is an undeniable occurrence and one that we can start preparing for from the very beginning. Think of it this way: the earlier you start saving for it, the more comfortably you can retire.

Give Yourself Some Space

The more money you have saved, the more you control your own destiny. If your job has you on the verge of a nervous breakdown, you can quit even if you don’t have a new job lined up and take some time off to restore your sanity before you look for a new one. This is definitely not considered a very safe approach only because most people do not have adequate funds to help them go through a phase of unemployment while being stress free. Of course there is always the possibility that finding a new job won’t be easy but at least with more money in the bank, you will definitely not be forced to accept an offer that you may not be content with.

Live Your Bucket List

Saving money means you might end up with some disposable income that can be spent on that bucket list you’ve secretly got stored in your head. Whether it’s travelling to a new country or going sky diving, you will only be able to live out your fantasies once you’ve got enough money saved up for your future.

One-Time Expensive Purchases

The phone that you’ve been eyeing for months or the clothes that you’re dying to add to your wardrobe might seem out of reach when you don’t have any savings. However, with your money slowly adding up, you’ll be well-equipped to splurge a little on yourself.

The list of reasons can be endless but the bottom line is that storing away some money is extremely necessary. Not only does it give you more options later on in life, it also helps improve your quality of life in the long term. Having made a convincing argument in favor of saving money, the next step is figuring out HOW to save it in ways that makes it grow.

There are multiple options available in the market – mutual funds, savings accounts, stocks, properties etc. Choosing among these depends on the level of risk you’re willing to take, the amount of money you’re planning to invest and the kind of liquidity you’d expect your cash to have. While each of these options has its own pros and cons, there are some which have gained popularity among newer investors in recent years such as mutual funds.

Since mutual funds can be a relatively low risk and less time-consuming investment, it is an option preferred by many who like to reap the benefits of higher returns on their savings as compared to traditional methods. However, your choice of investment avenues would be derived from a detailed review of the pros and cons of each method as well as your personal preferences.